Building and Maintaining Strong Business Credit Rating [Guide]

By April 9, 2024 Insights

Your Business, Your Credit Score

Building a strong business credit isn’t just about ticking boxes; it’s about setting your SME up for success, opening up new avenues for growth, and building trust in the marketplace. Think of it as your business’s financial report card that lenders, suppliers, and even potential partners check out to see how you’re doing. In this article, we’ll walk you through some savvy moves to help your business stand tall and proud in the credit world. Let’s dive in and make sense of the credit maze together!

Understanding Business Credit Scores

Ever wondered what makes up your business’s credit score? It’s like the DNA of your business’s financial health. A strong score can be your golden ticket to better loan rates, smoother dealings with suppliers, and a swagger in your business step. It’s all about how reliably you handle money – paying back loans on time, keeping your credit balances healthy, and making sure you’re not stretching yourself too thin. Let’s peel back the layers and get to the heart of what your business credit score is really all about.

Initial Steps to Establish Business Credit

Starting from scratch? No worries! Establishing business credit is like building a reputation – it takes time, but it’s worth it. First up, make sure your business is a separate entity from your personal finances. Get all the official stuff sorted – think business bank accounts, proper registration, and yes, even a business phone line. And here’s a pro tip: get a business credit card (not a debit card!). Use it wisely to start creating a track record of your business being as reliable as the sunrise.

To build a solid foundation for your business credit, think of it as setting up a professional stage for your company. Beyond just opening a business bank account, consider how every financial decision reflects on your business’s credibility. Dive into the details like ensuring your business is listed in directories and you’re on top of all registrations. It’s not just about having a credit card; it’s how you use it to show that your business is financially savvy and trustworthy. This groundwork is crucial for paving the way to a robust credit profile.

Starting a business during a recession

Get a Handle on your Debt

Getting a handle on debt is like learning to juggle – it’s all about balance. Smart debt management isn’t just about paying bills on time; it’s about strategic borrowing that fuels growth without overburdening your balance sheet. Think of debt as a tool, not a trap. Use it to invest in areas that drive revenue, like new equipment or marketing, but keep a keen eye on your debt-to-income ratio. The goal? Keep your business nimble, ready to leap at opportunities, not weighed down by financial obligations.

Top Tip – With the current interest rates in the UK now reaching around 5% APR, you may find that instead of settling any of your current loans/debt early, you’re better off putting it into a savings account and making a profit on it!

Business Name Tips

Trade Credit Strategies

Imagine trade credit as a secret handshake between businesses. It’s not just about buying now and paying later; it’s about forging strong relationships with suppliers. When you pay back that trade credit on time, you’re not only keeping your suppliers happy but also beefing up your business credit score. Think of it as a trust-building exercise. Each timely payment is like a vote of confidence in your business’s reliability, slowly but surely boosting your standing in the credit world. Particularly in trade industries, trade accounts are very common and they’ll usually give you a credit limit based on your previous year(s) of accounts. Building up a good reputation with your trade suppliers opens up opportunities to improve your cashflow too.

Credit Monitoring and Reporting

Keeping an eye on your business credit is like checking the pulse of your financial health. It’s not a ‘set and forget’ deal; regular check-ups can spot issues before they become headaches. This vigilance ensures your credit report mirrors your true financial picture, free from errors or outdated info. Think of credit monitoring as your business’s early warning system, alerting you to changes that could affect your access to credit and helping you stay on the front foot.

Monitoring your business credit is crucial, and there are several reputable agencies to help with this. Experian, Equifax, and Dun & Bradstreet are key players. Each offers services to help businesses monitor their credit scores and reports. Regularly checking these can alert you to any changes or potential issues, allowing for timely resolutions. For more detailed information and to sign up for monitoring services, it’s best to visit their official websites directly – many offer free trials too.

Accelerate your Credit Score

Utilising credit-building products wisely is key for SMEs looking to enhance their credit profile. Products like secured business credit cards and lines of credit are designed specifically for this purpose. They provide a way for businesses to demonstrate their creditworthiness by responsibly using and repaying credit. It’s crucial to choose products that report to the major business credit bureaus, ensuring your good credit management is reflected in your business credit score. Check out Capital on Tap – this business credit card offers £75 as a sign up bonus and 1% cashback on all purchases – a great way to increase your credit score and your profit margins with minimal effort!


Final Thoughts

Improving your business credit score should be considered at all times when making decisions in business. Credit shouldn’t simply be looked at as a negative as it can often help in time of difficulty and in certain situations, will give you flexibility when planning growth or expansion. It can also aid in cashflow and provide more flexibility when working with clients who may require longer payment terms. Wrapping up, we’ve navigated through key strategies for bolstering your SME’s business credit, each a step towards financial robustness:

  • Understanding what shapes your business credit score.
  • Taking initial steps to build a credit foundation.
  • Managing debt wisely to keep your finances healthy.
  • Using trade credit to enhance your credit profile.
  • Staying on top of your credit status with regular checks.
  • Building strong relationships with banks and lenders.
  • Selecting credit-building products that suit your needs.

If you’re struggling to improve your credit score, at Devonshire Green Accountants, we take a holistic approach with our clients and we can help you with your financial planning to improve your businesses financial reputation.

Need Some Help?

At Devonshire Green, we’re committed to helping SMEs with their financial planning. Call us today to find out how we can help you.

Book Now